An Exploration of t Money Demand in Colombia: A Non-Linear Approach

Abstract

This article models the money demand for the Colombian economy between 1984 and 2016. We use a cointegration model under a non-linear framework as the one proposed by Saikkonen and Choi (2004). Our results suggest two extreme regimes for the money demand in the Colombian economy and confirm its instability. We found out that there is a cointegration long-term relationship between money demand, prices, income and the interest rate. The coefficients were significant and with the sign as expected by the economic theory. In particular, interest rate semi-elasticities were estimated between -0.005 and -0.983, while income elasticities were estimated between 1.967 and 3.006. Statistical evidence of homogeneity of degree one of the demand for money with respect to prices was ambiguous.